Rachel and I have the privilege of hosting Dave Ramsey’s Financial Peace University at church, starting next week. If you are familiar with Dave Ramsey, you know he’s been on a mission to get America financially fit for two decades, a quest he began after filing for personal bankruptcy and learning a great deal in the process.
Dave has a simple plan for personal finances, and has recently adapted it to small business. His plan is based on Biblical principles, most notably:
Just as the rich rule the poor, so the borrower is servant to the lender. Proverbs 22:7
This verse gets some serious reactions, it turns out. Everything from:
That’s just old-fashioned and ridiculous. You can’t run your business without debt, much less your life. How do you ever grow, or get the stuff you want?
I can’t believe the impact this wisdom has had on my life and my business. I wish I would have adopted the mindset earlier!
After having a few dozen conversations on the matter of debt, please allow me to share a few observations:
1. The Bible does not say it is wrong to be in debt. It only explains the risk (becoming a servant to the lender.)
2. A person can obviously make more money faster when using debt, for example by borrowing at 4% to invest in an opportunity that pays 6%. (A person can also lose money faster if the assumptions aren’t correct, or conditions change.)
3. One’s mindset changes when holding cash. Personally, I have been tempted to buy things with borrowed money (for fun or business) that I wouldn’t have forked over the cold, hard cash for if it had been in my possession.
4. Nobody ever opens up and says “man, I sure wish I would have leveraged more.”
5. There are some folks out there who have made a great deal of money without using debt, including Dave Ramsey himself. Apple, Bed Bath and Beyond, to name a few, also operate without debt.
6. And there are a lot of finance professors with incredible understanding of financial leverage who are broke.
What does this mean for a small business or farm? Everything. You can’t go bankrupt if you don’t owe money. You can’t be forced to sell anything, and you don’t have to send your financial statements to the bank so they can tell you if you’ve violated a loan covenant.
Just like Dave, I’ve had the privilege of trying both strategies. And just like Dave, I promise that life is more peaceful with a deep respect for Proverbs 22:7.